REPORTS OF Cases Argued and Determined IN THE Superior and Common Pleas Courts. CORPORATIONS-CONSOLIDATIONS-STOCK-OFFICERS. FRANK DEHASS ROBISON V. Cleveland CITY RAILWAY Co. et al. 1. PRELIMINARY Agreement for CONSOLIDATION OF CORPOKATIONS. A preliminary agreement appointing parties named as agents and proxies to carry out an agreement and perfect the consolidation of corporations, authorizing them to attend any and all meetings of the corporations, called for the purpose of carrying out the terms of the agreement, and to vote the stock in such manner as they shall find necessary to carry out the purposes of the agreement, and agreeing to deliver to such parties stock of the consolidating companies, with the fur.her provision tha! the shares of the consolidated company shall be delivered to the constituent companies, apparently contemplating delivery to such companies in their corporate capacity, becomes merged in the contract of consolidation, and does not fix the rights of the parties; it has no legal effect in and of itself, but is purely preliminary. 2. Constituent Companies after ConsoLIDATION. Upon the instant of the consolidation of the corporations the consolidating companies cease to exist except as to creditors, and they survive then, under Sec. 3384, Rev. Stat., for the mere purpose of enabling creditors to collect their debts against them. 3. NEW STOCK CANNOT be Delivered to Old COMPANIES. A delivery of stock of a consolidated company to constituent companies, as such, could not be made, inasmuch as, after the consolidation, such companies do not remain in existence for any such purpose; such companies co 'd not surrender the old stock without consent of the holders nor are they authorized to receive the new. 4. CANNOT be DeliverED TO OFFICERS of OLD COMPANIES. Nor could the stock of a consolidated company be delivered to the officers of the constituent companies, as such, for the reason that when the consolidation goes into effect, such officers cease to have any official relation to the old company, except so far as is necessary for the protection of creditors. 5. BLANKET CertificateS EXECUTED For BookkeepING PURPOSES. Blanket certificates representing the total amount of stock belonging to holders of stock in constituent companies af er consolidation, executed by the vice president and secretary of the consolidated company upon representation of the transfer agent, and by advice of general counsel that it would be all right, that the same were to be used simply for bookkeeping purposes, and that individual certificates subsequently issued would be charged against them, cannot be regarded as a delivery of the constituent companies' stock. 1 13 Dec. Cuyahoga Common Pleas. 6. RECORD of SubscriPTIONS AND Transfers. It is not necessary that the secretary or directors of a corporation themselves keep the record of subscriptions and transfers of stock, required by Sec. 3254, Rev. Stat By the appointment of a transfer agent and registrar, the duties imposed by that section are devolved upon them. 7. Care Required of Directors of CorpoRATIONS. Directors of corporations are required to use ordinary care in the management of its affairs, to be determined in view of all the circumstances under which they are placed with reference to the affairs of the company. 8. DUTY OF CORPORATION As Custodian of Stock. It is the duty of a corporation, as the custodian of its stock, to exercise reasonable and proper care and diligence in the issue of the stock, and it is liable for any injury sustained by negligence or misconduct on its part, operating to the injury of any one entitled to its shares of stock. 9. RULE WHEN STOCK IS ISSUED TO TRUSTEE. Whenever stock is issued to a trustee, reasonable diligence must be exercised by the corporation to ascertain the nature and extent of his authority. 10. VALID ISSUE OF STOCK of Consolidated CompANY. In order to constitute a valid issue of certificates of stock of a corporation formed by the consolidation of other corporations, certificates of the stock of the constituent companies should be surrendered and cancelled. 11. MERE Negligence NOT ESTOPPEL-WHEN IT BARS RECOVERY. Where negligence, under ordinary circumstances, will not in and of itself con stitute an estoppel, but inasmuch as the law casts upon a director the duty of exercising ordinary care, with reference to the concerns of the company, and failure to do so makes the director liable for such wrongs as follow from his negligence, if he is directly concerned with the wrongful diversion of stock, and his negligence was the proximate cause thereof, it would bar his recovery for losses which he might sustain thereby. 12. PROXIMATE Cause of Wrongful DiverSION OF STOCK. Where it appears that the transfer agent of a corporation formed by the consolidation of other corporations was permitted by the registrar aud executive officers of the corporation to issue certificates of stock in the consolidated company without surrender of the stock in the constituent companies, whereby all the stock of the consolidated company was issued and in part wrongfully diverted, leaving about $800 000 of the stock of a constituent company unpaid and uncancelled, the majority of which was owned by the vicepresident (a director, but not a salaried or active officer), the proximate cause of the loss was in permitting new stock to be issued without a surrender of the old, and the corporation is liable to the vice-president stockholder for his losses. 18. GENERAL Negligence does not DEFEAT RECOVERY, WHEN. Where it appears that the officer and stockholder in question had no actual knowledge that the transfer agent, a man of high business standing, was wrongfully diverting the stock, and had no reason to distrust him, the mere fact that he was guilty of negligence generally, in that he failed to insist upon having the contract of consolidation, which contemplated an exchange of stock within a reasonable time, promptly executed, is not sufficient to defeat his recovery, in view of the commissive negligence of executive officers in permitting the stock to be wrongfully issued. 14. MEASURe of Damages. The measure of damages in such case is the amount of plaintiff's stock, less his share of the indebtedness of the constituent company. The fact that since the consolidation the indebtedness has been paid, does not entitle plaintiff to recover his stock free from debts where it, does not appear that his money contributed to the payment of such debts. Kline, Carr, Tolles & Goff, A, W. Lamson, L. A. Russell and M. A. Norris, for plaintiff, cited: Robison v. Street Railway Co. Upon the question of estoppel, 2 Thompson Corp., Sec. 2305; Baker's Appeal, 1 Atl. Rep. 78 [108 Pa. St. 510, 519]; York v. Rolling Mill Co., 30 Fed. Rep 471; McKinzie v. Steele, 18 Ohio St. 38; Ensel v. Levy, 46 Ohio St. 255 [19 N. E. Rep. 597]; Beardsley v. Foot, 14 Ohio St. 414, 416 [84 Am. Dec. 405]; 11 Am. & Eng. Enc. Law, 420, 423; Herman on Estoppel, p. 1343n.; Insurance Co. v. Wilkinson, 80 U. S. (13 Wall.) 222n.; Bronson v. Chappell, 79 U. S. (12 Wall.) 681; Swain v. Seamens, 76 U. S. (9 Wall.) 254; Smiley v. Wright, 2 Ohio 506; Castalia Trout Club v. Sporting Club, 8 Circ. Dec. 693 (8 R. 194); Cook Corp., p. 726, n. 4; 4 Thompson Corp., 4701, 2313; Sec. 3254, Rev. Stat.; Cincinnati, N. O. & T. P. Ry. v. Bank, 56 Ohio St 351, 389 147 N. E. Rep. 249; 43 L. R. A. 777]; Tone v. Railway Co., 39 Md. 36; Titus v. Turnpike Co., 61 N. Y. 237, 243; Fifth Ave. Bank v. Railway Co., 137 N. Y. 231 [33 N. E. Rep. 378; 33 Am. St. Rep. 712]; Allen v. Railway Co., 22 N. E. Rep. 917 [150 Mass. 200; 5 L. R. A. 716; 15 Am. St. Rep. 185]; Railway Co. v. Bank, 60 Md. 36; Van Leuven v. Bank, 54 N. Y. 671; Nowack v. Railway Co., 60 N. E. Rep. 32 [166 N. Y. 433]; Loring v. True, 104 U. S. (14 Otto) 223, 227; Bridgeport Bank v. Railway Co., 30 Conn. 231; 11 Am. & Eng. Enc. Law (2 ed.), 420, 434, Sub. Div. 5 and note 6; Herman on Estoppel, Sec. 954; Gill v. United States, 160 U. S 431 [16 S. Ct. Rep. 322]; Justices v. Murray,76 U. S. (9°Wall.) 274; Cleveland v. Railway Co., 12 O. F. D. 459 [93 Fed. Rep. 113, 124, 126]; Steel v. Smelting Co., 106 U. S. 447, 456 [1 S. Ct. Rep. 389]; Cook Corp., Sec. 366 and cases cited; Bath Sav. Inst. v. Bank, 36 Atl. Rep. 996 [89 Me. 504]; Pennsylvania Co. v. Insurance Co., 37 Atl. Rep. 191 [181 Pa. St. 40]: Scollans v. Rollins, 53 N. E. Rep. 863 [173 Mass. 275]; O'Herron v. Gray, 47 N. E. Rep. 429 [168 Mass. 573; 40 L. R. A. 498; 60 Am. St. Rep. 411]; Duncan v. Jaudon, 82 U. S. (15 Wall.) 165. Duty of defendant company in regard to issuing and exchanging its stock. Sections 2505b, 3381, 3382, Rev. Stat.; Ashley v. Ryan, 49 Ohio St. 504, 529 [31 N. E Rep. 721]; Ashley v. Ryan (affirmed), 8 O. F. D. 215 [153 U. S. 436]; Shields v. Ohio, 95 U. S. 319; Yazoo & M.V. Ry. Co. v. Adams, 180 U. S. 1, 20 [21 S. E. Rep. 240]; Secs. 148a, 3254, 3384, Rev. Stat.; Cleveland & M. Ry. Co. v. Robbins, 35 Ohio St. 483, 484; Telegraph Co. v. Davenport, 4 O. F. D. 542 [97 U. S. 369]; Bank v. Lanier, 78 U. S. (11 Wall.) 369, 378; Geyser-Marion Gold Mining Co. v. Stark, 106 Fed. Rep. 558 [45 C. C. A. 467]; Strange v. Railway Co., 53 Tex. 162, 168; Cushman v. Jewelry Co., 76 N. Y. 365; 1 Cook on Corp., Secs. 373, 375, 380, 382, 402, 410; Bridgeport Bank v. Railway Co., 30 Conn. 231; Bayard v. Bank, 52 Pa. St. 232, 234, 235; Livezey v. Railway Co., 27 Atl. Rep. 379 [157 Pa. St. 75, 86, 87]; Clemens v. Heckescher, 40 Atl. Rep. 80 [185 Pa. St. 476]; Loring v. Mills, 125 Mass. 138, 150; Caulkins v. Gas Light Co., 4 S. W. Rep. 287 [85 Tenn. 683; 4 Am. St. Rep. 786]; Bath Sav. Inst. v. Bank, 36 Atl. Rep. 996 [89 Me. 504]; Lee v. Sturges, 46 Ohio St. 153, 168, 169 [19 N. E. Rep. 560; 2 L. R. A. 556]; Comp |